Analyzing Business Markets

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 Chapter Questions

 What is the business market, and how does it differ from the
consumer market?
 What buying situations do organizational buyers face?
 Who participates in the business-to-business buying process?
 How do business buyers make their decisions?
 How can companies build strong relationships with business
customers?
 How do institutional buyers and government agencies do their
buying?

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 Business Market
 The Business Market consists of all the organizations that
acquire goods and services used in the production of other
products or services that are sold, rented and supplied to
others.
 The major industries making up the business market are
agriculture, forestry, fisheries, mining, manufacturing,
construction, transportation, communication, banking,
finance, insurance and distribution.

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 Characteristics of Business Markets

 Fewer, larger buyers  Derived demand

 Close supplier-customer  Inelastic demand
relationships  Fluctuating demand
 Professional purchasing  Geographically concentrated
 Many buying influences buyers
 Multiple sales calls  Direct purchasing

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 Business Markets vs Consumer Markets
 Business Markets have several characteristics that contrast
sharply with those of consumer markets.
i. Fewer but Larger Buyers
ii. Close Supplier-Customer Relationship
iii. Professional Purchasing (Business goods are often purchased
by trained purchasing agents who must follow their
organization’s purchasing policies, constraints and
requirements)
iv. Several Buying Influences
v. Multiple Sales Calls
vi. Derived Demand (The demand for business goods is
ultimately derived from the demand for consumer goods,
therefore the business marketer must closely monitor the
buying patterns of ultimate consumers)

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 Business Markets vs Consumer Markets
vii. Inelastic Demand (The total demand for many business
goods/services is not much affected by price changes)

viii. Fluctuating Demand (The demand for business goods and

services tends to be more volatile than consumer
products/services)

ix. Geographically Concentrated Buyers (Business buyers are

normally geographically concentrated which helps them to
reduce selling costs)

x. Direct Purchasing (Business buyers often buy directly from

manufacturers rather than through intermediaries, especially
for technically complex and expensive items)

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 Business Buying Situations
 There are three types of Buying Situations.

a. Straight Rebuy
b. Modified Rebuy
c. New Task

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 Business Buying Situations
a. Straight Rebuy : Routine reordering e.g. office supplies etc.
The suppliers are chosen from the “approved list”. The In-
suppliers make an effort to maintain product and service
quality, while Out-suppliers attempt to offer something new
or to exploit dissatisfaction with a current supplier.

b. Modified Rebuy : The buyer wants to modify product

specifications, prices, delivery requirements or other terms.
This involves an opportunity for Out-suppliers to propose a
better offer to gain some business.

c. New Task : A purchaser buys a product or service for the first

time. e.g. office building new security system.

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 Business Buying Situations

 Note : The business buyer makes the fewest decisions in the

Straight Rebuy situation and the most in New-Task situation.

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 Systems Buying and Selling

 Systems Buying : Many business buyers prefer to buy a total

solution to a problem from one seller, it is also called
‘Turnkey Solution’.
 Sellers have increasingly recognized that buyers like to
purchase in this way and many have adopted systems selling
as a marketing tool.
 One variant of systems selling is Systems Contracting where a
single supplier provides the buyer with his/her entire
requirement of MRO (maintenance, repair, operating)
supplies.

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 Systems Buying and Selling
 Systems Selling is a key industrial marketing strategy in
bidding to build large-scale industrial projects, such as dams,
steel factories, irrigation systems, pipelines, utilities, new
towns etc.

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 Participants in the Business Buying Process
 Who buys the trillions of dollars’ worth of goods and services
needed by business organizations? The decision-making unit
of a buying organizations is called “The Buying Centre”.
 The Buying Centre is composed of all those individuals or
groups who participate in the purchase decision-making
process.

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 Participants in the Business Buying Process
 The Buying Centre includes all members of the organization
who play any of seven roles in the purchase decision process
(Initiators, Users, Influencers, Deciders, Approvers, Buyers,
Gatekeepers).
 Several individuals can occupy a given role (e.g. there may be
many users or influencers), and the individual may occupy
multiple roles (e.g. a purchasing manager occupies the roles
of buyer, the influencer and gatekeeper simultaneously)
 The typical buying centre has a minimum of five or six
members and often has dozens.
 The buying centre may include people outside the
organization, like consultants, technical advisors etc.

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 The Buying Center Roles
Initiators

Users

Influencers

Deciders

Approvers

Buyers

Gatekeepers

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 Purchase Orientations

 In the past, purchasing departments occupied a low position

in the management hierarchy, in spite of often managing
more than half of company’s costs; however recent
competitive pressures have led many companies to upgrade
their purchasing departments.
 We can distinguish three company purchase orientations.

a) Buying Orientation
b) Procurement Orientation
c) Supply-Chain Management Orientation

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 Purchase Orientations

Buying

Procurement

Supply Chain
Management
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 Purchase Orientations

a) Buying Orientation : The purchaser’s focus is short-term and

tactical. Buyers use two tactics : Commoditization and Multi-
Sourcing.
b) Procurement Orientation : The buyers simultaneously seek
quality improvements and cost reductions. They develop
collaborative relationships with major suppliers and negotiate
long-term contracts with them.
c) Supply-Chain Management Orientation : Here purchaser role
is further broadened and they work with marketing and other
company executives to build supply chain management
system from the purchase of raw materials to the on-time
arrival of finished goods to the end users.

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 Product-Related Purchasing Processes

Routine products

Leverage products

Strategic products

Bottleneck products

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 Types of Purchase Processes
 The purchasing departments purchase many types of
products and the purchasing process will vary depending
upon the types of products involved. There are four product-
related purchasing processes.
a. Routine Products (Low value, low cost products to the
customer with little risk involved, e.g. office supplies)
b. Leverage Products (High value, high cost products to the
customer with little risk of supply involved, e.g. engine
pistons)
c. Strategic Products (High value, high cost products to the
customer with high risk involved, e.g. mainframe computers)
d. Bottleneck Products (Low value, low cost products to the
customer with some risk involved, e.g. spare parts)

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 Stages in the Business Buying Process

 Robinsons and Associates have identified eight stages and

called them buyphases. These stages describe the buying
stages involved in a new-task buying situation. In modified-
rebuy or straight rebuy situations, some stages are
compressed or bypassed.

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 Stages in the Business Buying Process
Eight Stage Model

a. Problem Recognition
b. General Need Description and Product Specification
c. Supplier Search
d. E-Procurement (Web Sites, Direct Extranet Links to major
suppliers, Buying Alliances, Company Buying Sites) (See Next
Slide)
e. Proposal Solicitation
f. Supplier Selection (See Next Slide)
g. Order-Routine Specification
h. Performance Review

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 Stages in the Business Buying Process
d. E-Procurement
i. Web Sites (Web sites are organized around two types of e-
hubs : vertical hubs centred on industries like plastics, steel,
chemicals, paper; and functional hubs like logistics, media
buying, advertising, energy management)

ii. Direct Extranet Links to major suppliers

iii. Buying Alliances

iv. Company Buying Sites (General Electric formed the Trading

Process Network (TPN) where it posts requests for proposals
(RFPs), negotiate terms and places orders.

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 Stages in the Business Buying Process
d. E-Procurement
 Moving into E-Procurement involves more than acquiring
software; it requires changing purchasing strategy and
structure; however the benefits are many, like volume
discounts, less buying of substandard goods and a smaller
purchasing staff is required.

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 Stages in the Buying Process
f. Supplier Selection
 Before selecting a supplier, the buyer or buying centre will
specify desired supplier attributes and indicate their relative
importance.
 Then suppliers are evaluated.
 The buying centre may attempt to negotiate with preferred
suppliers for better prices and terms before making the final
selection.
 Furthermore, the buying centres must decide how many
suppliers to use. The companies are increasingly reducing the
number of suppliers. There is even a trend toward “Single-
Sourcing”.

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 Stages in the Buying Process
f. Supplier Selection
 The companies that use multiple sources often cite threat of
a labour strike as the biggest deterrent to Single Sourcing.
Another reason companies may be reluctant to use a single
source they fear they will become comfortable in the
relationship and will lose their competitive edge.

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 Stages in the Buying Process
h. Performance Review
 The buyer periodically reviews the performance of the chosen
supplier(s). Several methods can be used such as the buyer
may contact end-users and ask for their evaluations. Also
weighted score method can be used.
 The performance review may lead the buyer to continue,
modify or end a supplier relationship.
 Many companies have set up incentive systems to reward
purchasing managers for good buying performance.

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 Institutional and Government Markets
 The Institutional Market consists of schools, hospitals, nursing
homes, prisons and other institutions that must provide
goods and services to people in their care. These are
characterized by low budgets and captive clienteles.
 In most countries, Government Organizations are a major
buyer of goods and services. Government organizations
typically require suppliers to submit bids and normally they
award the contracts to the lowest bidder, however in some
cases, the government unit will make allowance for the
supplier’s superior quality or reputation for completing
contracts on time.

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 Institutional and Government Markets

Aramark successfully services

Institutional and Government Markets

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 Activity

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